Personal Guarantees
A personal guarantee is a legal commitment by a director (or other individual) to repay a company debt if the business cannot do so. Personal guarantees are commonly requested by lenders, finance providers, landlords, and some suppliers when extending credit to a company.
If a company enters liquidation, personal guarantees can have significant implications because they create potential personal liability separate from the company’s debts.
What is a personal guarantee?
A personal guarantee means that if the company fails to meet its repayment obligations, the creditor can pursue the guarantor personally for the outstanding balance. This can include interest, fees, and enforcement costs depending on the agreement.
Guarantees may be supported by additional security, such as a charge over property or other personal assets.
Common types of personal guarantees
- Bank loans and overdrafts
- Asset and vehicle finance agreements
- Invoice finance facilities
- Commercial leases
- Trade credit arrangements
- Government-backed lending schemes
What happens to guarantees in liquidation?
Liquidation deals with company debts only. Personal guarantees remain enforceable by the creditor and are not automatically written off.
- The creditor will submit a claim in the liquidation
- If there is a shortfall, the creditor may pursue the guarantor personally
- The timing of enforcement varies by creditor and circumstances
Will creditors always enforce guarantees?
Not always. Creditor behaviour depends on the size of the balance, available security, the guarantor’s financial position, and commercial considerations. Some creditors actively pursue recovery, while others may negotiate settlement.
Possible options for directors
Where guarantees exist, a range of practical solutions may be available depending on circumstances:
- Negotiated settlement with the creditor
- Time-to-pay or instalment arrangements
- Refinancing or restructuring of liabilities
- Use of insurance (if applicable)
- Formal personal insolvency advice where required
Early communication often improves the likelihood of achieving manageable outcomes.
Common director concerns
- Uncertainty about which agreements contain guarantees
- Concern about personal financial exposure
- Fear of immediate enforcement action
- Impact on credit profile and assets
These issues can usually be clarified through review of agreements and discussion of realistic options before liquidation proceeds.
What should directors do now?
If you believe you may have signed personal guarantees, gather facility agreements and related documentation where possible. Understanding the scope and extent of guarantees early helps inform planning and decision-making.
Avoid making assumptions — guarantees vary widely in wording, enforceability, and practical impact.
Speak to Insolvency Direct Ltd
We can review your situation confidentially, explain how personal guarantees may be affected by liquidation, and discuss potential next steps. Practical guidance, clear explanations, and no obligation.
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